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Managerial Incentives and the International Organization of Production
Gene M. Grossman
Princeton University - Woodrow Wilson School of Public and International Affairs; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
Elhanan Helpman
Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
December 2002
Harvard Institute Research Working Paper No. 1987; Princeton University/Woodrow Wilson School Discussion Papers in Economics No. 220
Abstract:
We develop a model in which the heterogeneous firms in an industry choose their modes of organization and the location of their subsidiaries or suppliers. We assume that the principals of a firm are constrained in the nature of the contracts they can write with suppliers or employees. Our main result concerns the sorting of firms with different productivity levels into
different organizational forms. We use the model to examine the implications of falling trade costs for the relevant prevalence of outsourcing and foreign direct investment.
Keywords: Outsourcing, Direct Foreign Investment, Theory of the Firm, Intra-firm Trade
JEL Classifications: L22, F23, D23
Managerial Incentives and the International Organization of Production .pdf
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